Edit: Please Note this post is now out of date (see comments below) 


My biggest holding is once again Global Health Limited (ASX: GLH), which dropped on Thursday to 52c per share. Personally, I’ve held Global Health through some volatile share price movements that turned out to be based on nothing. It is, after all, a low liquidity microcap. I started writing this over the ANZAC Day long weekend, when I thought the share price might linger at those levels. It didn’t, and is currently at about 67c. However, I offer this update on the company for future reference, as it seems quite possible there will be more opportunities to buy at a good price in the future, especially if the old "Sell in May" adage holds true once again.


Now when Global Health last reported it had quite terrible operating cashflow. However, the receivables were up by more than $400,000 and the payables were down, too. I spoke to the CEO Mathew Cherian a few weeks ago, and he confirmed to me that the operating cashflow was down because of this move in payables and receivables. Basically, he said that now the company was on its feet, it could pay bills sooner and be a little more generous when negotiating payment terms. In truth, I think that normalised free cashflow is somewhere between $1 million per year and $1.25 million per year (guesswork alert).


Importantly, Mr Cherian told me that the company expenses ongoing maintenance R&D, so I do think it is fair to say that free cashflow will be at least $1.15 million for 2014. However, this could be wrong, and I’d say that’s where the most risk to the estimated buy price is.


According to my analysis, I only need one more year of double digit growth out of the company to justify buying shares at 52 cents each. If the company can do better than that, it’s all upside (assuming normalised free cash flow for FY 2014 is at least $1.15 million.) I say normalised because at this stage I think it is fair to trust that the reported cashflow will be volatile, but that low periods of free cash flow will be compensated by higher periods as receivables and payables stabilise. Having said that, if we continue to see payables fall and receivables rise, then that would become a problem. That’s a key risk that I’ll be watching for.


The Department of Health has refused to release the report the Minister received in December 2013 regarding the Personally Controlled Electronic Health Records project that the government launched. What we do know, is that the system doesn’t work. Also, I can’t see why GPs would want to sign up to a system that gives patients ownership of the GPs notes… I realise that most people think they own their medical records but they don’t and I think that it’s quite crazy to think you would own notes that a professional has made as part of their job! Having said that, the ethical duty of doctors to keep medical records is clear, and they would not be doing their jobs properly if they did not keep records. Government policy has the potential to be either strongly negative or positive on the Global Health business. However, I think that it is unlikely that the Coalition will choose to waste a lot more money on the government scheme.


The Author owns shares in Global Health. Nothing on this website is advice, ever. The purpose of this blog is to keep track of my decisions and invite feedback



Comments

Claude Walker  4 years ago Reply
4 years ago Reply

Update: I reckon this is a bit high on the FCF, I'd put it closer to $1 million, assuming no maintenance R&D is accounted for as "investing cashflow".

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Claude Walker  3 years, 10 months ago Reply
3 years, 10 months ago Reply

Recent machinations from the company have seen the share price sold down, mostly due to an evaporation of trust in management.

I myself (having sold part of my holding at various prices above 63c) sold almost all my holding at 33c.

I retain 3500 shares, currently valued at about $1000. I may sell at any time, as I've downgraded this company, and don't perceive it to be particularly undervalued.

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Claude Walker  3 years, 3 months ago Reply

I sold my last shares in Global Health a little while ago.

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